While Israel expressed shock at the attack, Hamas has praised it, calling for more following the suspicious death of a Palestinian bus driver.
The Palestinians will take their long march for statehood to the gates of the UN next week in a bid to have their state accepted as a full member.
Peace talks between Israel and the Palestinians appeared to have collapsed on Wednesday after Washington admitted its attempts have failed.
There was outrage on Tuesday after a former Israeli soldier posted on Facebook pictures of herself with blindfolded Palestinian prisoners.
Israel on Sunday vowed to prevent a Libyan aid ship from running the Gaza blockade after it appeared to be heading for the besieged enclave.
Israel's Security Cabinet met again on Thursday to discuss easing a four-year blockade of the Hamas-run Gaza Strip.
Menahem Froman is one of the few Israelis to have dared sit down with arch-enemy Hamas. But he's not just any Israeli. He is a Jewish settler and a rabbi who lives in the West Bank. Last month, fear struck deep in the heart of Israel when the radical Islamist movement won a landslide victory in the Palestinian elections.
Ariel Sharon blinked his eyes on Monday as a tape of his grandson was being played, but medics treating Israel's coma-stricken premier said it is too early to assess the significance of the development. Meanwhile, acting Prime Minister Ehud Olmert was officially named interim chairperson of Sharon's Kadima party on Monday.
The Rafah border, Gaza's only link to the outside world that bypasses Israel, was declared open by Palestinian leader Mahmoud Abbas on Friday after being shut for nearly three months. "It is a dream come true for us to be here to celebrate the reopening of the Rafah terminal," Abbas told Palestinian and foreign dignitaries.
Israeli forces were set for a showdown on Thursday with the final hard core of Gaza Strip settlers, surrounding synagogues where thousands of religious Jews had taken refuge as the country struggled to absorb the traumatic impact of ending its 38-year occupation of Gaza.